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Tuesday, 8 March 2016

Nigeria has about as much electricity as Edinburgh. That is a problem

OUT in the farthest reaches of Lagos, a bumpy boat ride across the
city’s dividing lagoon, Egbin power plant is trying to light up one of
the world’s darkest nations. Six turbines growl in its huge belly,
watched over by mechanics in a futuristic control room. They say the
place is barely recognisable since privatisation in 2013. Output has
rocketed since Sahara Group, a Nigerian energy conglomerate, took over.
When running at full steam, Egbin generates almost a quarter of the
whole country’s electricity.
That is not a particularly stretching target. Of Nigeria’s many daily
headaches, power is perhaps the worst. After years in which state-owned
power plants decayed, the government changed course by selling power
stations and the distribution grids that carry power to homes and
businesses. This bold stroke was meant to turn the lights on, and indeed
it has encouraged investors to put millions of dollars into upgrading
the battered system. Yet the supply of power has failed to respond as
hoped in the two years since privatisation. At the moment the country’s
big stations produce a pitiful 2,800MW, which is about as much as is
used by Edinburgh. Only just over half of Nigerians have access to
electricity, and it is still harder for businesses to hook up to the
grid than almost anywhere else.

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One reason why privatisation has failed to improve Nigeria’s power
supply is that the process itself was flawed from the start. Even as
companies were bidding to buy power stations or distribution companies,
striking staff prevented them from looking at what they were buying.
Once the deals were done they found they had bought rundown equipment
and companies whose books had been systematically cooked. More
important, though, was that many could not get the gas they needed to
power their plants. Government meddling held down gas prices, which
meant that many producers would simply flare it off (while extracting
oil) instead of bothering to sell it at a deep loss. Moreover, the pipes
meant to carry the flammable stuff are rusting and regularly vandalised
by thugs demanding money to protect them.
The privatisation process was also incomplete and left the
transmission grid (which carries electricity from power stations to the
local distribution grids) in the hands of the state. It has not invested
much, so huge amounts of power fizzle out on its dilapidated lines.
Even if power plants could generate more electricity, the grid would not
be able to handle it. At Egbin a handful of people employed by the
state-owned transmission network sit watching YouTube clips as their
private-sector colleagues beaver away.
Power plants are also owed colossal sums by the agencies that act as
middlemen between generation companies and the distributors. Egbin alone
is some $225m out of pocket. The intermediaries, in turn, blame
distributors, saying they have not been collecting cash from their
customers. As for the distributors, they say that the tariffs they are
allowed to charge are too low to cover their costs and that, in any
case, Nigerians do not pay their bills. Depressingly, the biggest
offender is the government, whose various departments and agencies owe
almost $300m. “It’s difficult for anyone to go to a military barracks
and order them to pay—except if you’ve written your will,” says one
insider.
More than a year ago the Central Bank of Nigeria organised a $1
billion loan to plug the gap and avoid a wave of insolvencies among
power generators, but only a fraction has been disbursed. Since then a
falling currency and shortages of foreign exchange have made it harder
for private power producers to service debts denominated in dollars, a
currency many chose because it offered lower interest rates than
borrowing in naira. Finding cash (and hard currency in particular) to
buy gas, maintain machinery and pay technical partners is a growing
strain. Dallas Peavey, Egbin’s chief executive, reckons that without
repayment or preferential access to foreign currency he can keep the
country’s biggest power station running for just another four weeks.
Still, there are glimmers of hope. In recent years the government has
raised the price of gas, and supplies are growing more reliable.
Distribution companies are installing new meters, which are harder to
fiddle. Unpaid public electricity bills are being chased up. Most
crucially, tariffs were increased in February by as much as 45%. It did
not go down at all well with locals. But if Nigerians can be convinced
to pay their bills, it ought to get some cash flowing through the
system. That would be a start.